The future of social commerce in Southeast Asia

Consider this – you scroll through Instagram, see your favorite influencer wearing something that’s caught your fancy. 

Your immediate next step? 

Log on to your most frequently used marketplaces to find out how much that is selling for, and if all works out, you buy it.

What if you could buy on your social media application itself, eliminating the step of going to your marketplace app? This convenient yet powerful way of transacting is what is known as social commerce.

Social commerce in Southeast Asia has taken off dramatically in the last few years. But it may just be the beginning, considering the size of the opportunity at play.

Putting the fun back in shopping

Much like other markets such as the US and India, e-Commerce has seen explosive growth in Southeast Asia in a similar pattern. 

This has only been boosted for obvious reasons by the COVID-19 pandemic, bringing 40 million new users online in the region. 

Over a third of 2020’s online business in Southeast Asia was generated by new shoppers, and 8 in 10 expect to continue to buy online. While hard to predict at this point, it seems like the greater adoption of e-Commerce is less a temporary pandemic surge, and more a structural shift of habits.    

However, a lot of the focus of this growth has been attributed to only marketplaces like Lazada and Shopee. While these platforms have done an extremely commendable job on executing, alongside them has been the sometimes-overlooked growth of social commerce. 

While social commerce may seem like a revolutionary concept, the reality is that shopping was always primarily designed to be interactive. Purchase decisions are always made via discussions with friends and family. 

While e-Commerce platforms brought efficiency, wider choice, and convenience, some argue that they took away the ‘social’ aspect of shopping. 

The first to take notice of this was China. 

Pinduoduo’s astounding success has shown that this model is one that can work when designed correctly. By mimicking the offline shopping experience through building communities within its team purchase model, the company was able to drive user virality.  Gamifying the shopping experience of even mundane everyday products helped the company drive repeat purchases. 

In effect it drove retention not common in e-Commerce.

While many argue that the success of this particular model is specific to China’s commercial landscape, Pinduoduo did lay the groundwork for social commerce models as an alternative to pure e-Commerce marketplaces. 

Southeast Asia soon took cues.

The wave in SEA

Close to 70% of Southeast Asia’s 650 million population are active social media users. Hence, the concept of social commerce that harnessed the power of these social networks was a no-brainer. 

Low penetration of e-Commerce up till half a decade ago in Southeast Asia signalled some wide gaps. 

There was untapped potential in Rural and Tier 1 and 2 markets due to high logistic costs, lack of internet access and less payment options. There was also paucity of trust in a large number of digital users for making an online purchase. 

The digitally savvy citizens, who comprise 70% of its population and daily spend almost 4.2 hours online, craved a more conversational-community based shopping experience.It was the perfect birthing moment for social commerce, combining social interactions and shopping experience, which manifested in various forms.

COVID acted as a natural accelerant. Total social commerce orders in the first half of 2020 more than doubled compared to the previous year.

However, while most of SEA is online, it is also very diverse region. Hence, it is only natural that models and platforms dominating in each market are different from one another. The picture below prepared by Alter Global perfectly encapsulates the different types of models in the Asia Pacific region.

On one hand, several players have adopted a similar Pinduoduo like model, with modifications to fit Southeast Asia’s local context. 

Kitabeli, an Indonesian start-up, for example, applies group buying using a D2C model. This encourages a community guided social experience rested on trust and virality as buyers share product information in their social circles directly for higher discounts.

On the other hand, there have been several that have taken the Pinduoduo model but with a twist. Given the cultural nuance of ‘community leaders’, particularly in Indonesia, players such as Webuy and Chilibeli have identified power users that act as product champions in their community. They help drive sales and are rewarded through a typical profit-share agreement.

Several have also harnessed the power of video and livestreaming on social media to sell online. Similar to Wmall and Bulbul in India, players like WellMart have cropped up in the region to combine shopping with live entertainment. 

Lastly, there has been the widely successful model that is reselling. Interestingly, this is one that did not take inspiration from China, but rather, the explosive growth of India’s Meesho. Several players have popped up in Southeast Asia, each taking different approaches to fit cultural nuances.

Super, for example, leverages the reseller O2O model with community buying in rural Indonesia. It focuses primarily on FMCG and sells bulk goods directly from manufacturers to agents who are typically community leaders through hyperlocal logistics. They in turn ensure last mile delivery to all other buyers in their neighbourhood. The assortment of SKUs plays a crucial role in the success of the platforms and quick feedback from buyers can flow upstream to optimise profitability completing the ecosystem.

Resellee from Philippines also leverages the social networks of its resellers to encourage purchases of groceries and other electronic items. The agents or resellers don’t have to carry inventory and can make commissions on each purchase they convert. 

Mio from Vietnam works on the S2B2C model by banking on the influence of young housewives to use their networks for frequent purchases of fresh produce. This enables them to reduce their customer acquisition costs and overcome last mile delivery challenges.

While most start-ups currently focus on frequency purchases such as fresh produce or FMCG-Woobiz, Raena, Kleora and Evermos are tapping in high value segments such as electronics, Beauty, and women centric offerings and Fashion.

What lies ahead

Social commerce already commanded 44% of total ecommerce in 2020. With a total projected size of 172 billion dollars in 2025, social commerce is bound to explode.

96% of e-Commerce marketers believe that social commerce will become significant in the next 5 years and that a well-rounded social commerce strategy is a must. 

While the space has already caught the attention of founders and venture capitalists alike, it has also caught the eye of marketplaces and social media giants. 

Giants like Facebook have publicly announced their foray into social commerce, while the likes of TikTok have hinted at social commerce being a key monetization strategy. 

Moreover, incumbent marketplaces like Lazada and Shopee, given their large user bases and pools of capital, have incorporated livestreaming and other models as natural extensions of their core platforms.

Hence, competition is inevitable, which may lead to consolidation in the future. However, given the large market opportunity and the sheer potential of the space, it certainly is not a winner take all market. 

The players that focus on the key levers of community creation, providing seamless customer journey, empowerment, user trust and responding to buying trends are likely to win out. 

The future remains promising, as social commerce has the potential to impact underserved customer segments, allow additional incomes for vocal influencers and especially women, and empower local entrepreneurs to sell online.

With these factors at play, social commerce truly has the potential to take e-Commerce to the next stage in Southeast Asia.

Story by Armaan and Kavya